Two of the largest companies in the student loan market will pay a total of $97 million to settle federal charges that they violated the Servicemembers Civil Relief Act by unlawfully charging active-duty military personnel high interest rates and late fees on student loans.
Sallie Mae and Navient Corp., a newly formed company that took over Sallie Mae's loan-servicing business earlier this month, faced charges of violating a federal law that caps loan interest rates at 6% for military members.
The Justice Department and Federal Deposit Insurance Corp. alleged the companies charged 60,000 service members interest rates that exceeded the cap, resulting in hundreds of dollars in excess interest charges. The companies also were accused
The Justice Department's portion of the settlement requires the companies to pay $60 million in refunds and a $55,000 civil penalty. The FDIC required $30 million in refunds and $6.6 million in penalties. The two companies recently increased to $173 million the amount set aside to resolve the probes.
The federal government said Sallie Mae and Navient had maximized late fees and failed to adequately disclose how consumers could avoid the fees.
Navient still faces probes by the Consumer Financial Protection Bureau and several states - led by Illinois Attorney General Lisa Madigan - into debt collection practices and how it managed and processed the payments of student loan borrowers.
Sallie Mae in February reported in a filing with the U.S. Securities and Exchange Commission, that it was facing "significant year-over-year increases" in the number of investigative demands and in the breadth of information sought.
Navient collects payments on nearly $300 billion in student loans. In a statement, the company said it reached the settlement to "put the matter behind it" and acknowledged it made "operational errors" that led to overcharges. Navient CEO John Remondi said the company offers "sincere apologies to the servicemen and servicewomen who were affected by our processing errors and thus did not receive the full benefits they deserve."
The company, which did not admit any wrongdoing as part of the settlement, disputed the Justice Department's interpretation of the military-lending law in question, stating that it is inconsistent with prior regulatory requirements for how borrowers should qualify for military-lending benefits.
Sallie Mae also did not admit any wrongdoing. But the company said it is "making the appropriate adjustments for our customers regarding past issues with disclosure of late fee assessments" and compliance with military lending laws. "We regret any inconvenience or hardship that our customers may have experienced," the Newark, Del., company said.
Democrats on Capitol Hill have questioned whether Navient should keep its contract to collect payments for the Education Department, which makes the bulk of student loans.
Education Secretary Arne Duncan on Tuesday said at a news conference that his agency is reviewing whether Navient violated the terms of its contract to manage payments on federal student loans.